Smart Contracts Beyond Crypto: Real-World Examples
Zaira Anwar, Blockchain Student, Digital University Kerala
When a person hears the phrase “smart contract,” they probably think of
cryptocurrencies, multi-million-dollar NFTs, and the wonderful and volatile world of De-Fi. While “smart contracts” are the underlying engine for cryptocurrencies like Ethereum, the true potential of smart contracts goes well beyond the crypto bubble. They are not “contracts” in the true legal sense, nor are they “smart” like artificial intelligence. A smart contract is just a computer program stored on a blockchain that automatically executes when certain conditions are met. For example, think of a smart contract like a vending machine. The user and the machine have the same simple agreement: IF you put in $2.00, and IF you press button “B4,” THEN the machine will give you that snack you require. A smart contract can function in a similar manner. “IF this happens, THEN do this.” A smart contract executes a term of the agreement or a simple contingent statement in code, where the terms of the agreement are catalogued in the code, and the transaction runs without requiring a third party to validate and execute it.
This basic yet powerful idea of automating trust and process is quickly moving out of the crypto speculation world and moving into the world of the enterprise. From tracking mangoes in seconds to automating insurance payments and digitising trillion-dollar trade finance processes, smart contracts address real-world business problems. This blog examines the non-crypto, concrete applications that are being piloted and deployed today within global supply chains, trade finance, and insurance
industries.
Revolutionising the Global Supply Chain
The contemporary global supply chain is an astonishing feat of logistics, but its coordination is frequently outdated. The intricately interconnected “knotwork of information flow” accepts a fractured delivery model of phone calls, emails, paper documents, and siloed IT systems. For a single shipment — a shipping container — there may be over 30 distinct organisations that have an interest in the shipment, and who generate hundreds of communications. This complexity creates enormous inefficiencies, delays, excessive administrative costs (involving as much as 22% of the retail price of an item in some cases), and a lack of transparency. To address the communication issues, smart contracts operating specifically on a shared blockchain provide a “single source of truth”.
Case Study 1: Walmart’s Quest for Food Safety
Events of food contamination, such as the 2006 E. coli outbreak in spinach, have raised serious questions about food traceability. Food traceability is often based on paper logs and a one-step measure up and a one-step measure back approach to tracing food. Walmart’s team found it took them 7 days to trace a single box of mangoes back to the farm. Being unable to trace food back in a reasonable time period is both expensive and shakes the public’s confidence in food safety, potentially placing food consumers’ health at risk.
To overcome this problem, Walmart collaborated with IBM to develop the Food Trust platform, which is powered by the enterprise-grade blockchain known as Hyperledger Fabric. In essence, the shared ledger is straightforward: every participant in the food supply chain (the farmer, the processor, the distributor, the retailer) enters important data, such as farm origination, batch numbers, processing information, storage temperatures, and shipping information, into the unchangeable (immutable)
shared ledger.
What was the result? That same 7-day mango trace-back was completed in just 2.2 seconds. This is where smart contracts come in. They are simply “if-then” rules that operate on top of this trusted data.
If an IoT sensor on a truck alerts that the temperature is above the safe threshold for pork, then that smart contract will automatically flag the shipment for inspection and notify the partners.
IF a contamination is found at a specific lot, THEN the blockchain enables “strategic removals” of only the affected products, instead of removing an entire product line from the shelf.
Walmart’s pilot was so successful, it grew into a collaboration with other food conglomerates like Nestlé, Dole and Tyson Foods.
Case Study 2: The TradeLens Saga — Ambition vs. Adoption
While Walmart concentrated on its internal supply chain, shipping giant Maersk and IBM engaged the entire global trade ecosystem. In 2018, they proposed TradeLens, a blockchain platform designed to digitise the paperwork associated with container shipping. The platform had two primary components: a “Shipping Information Pipeline”, which provided event visibility (e.g. “container at port”) and a “Paperless Trade” component, which digitised and smartly contracted key documents.
As an example, a smart contract could be authored for an import clearance. When the system determines that all required digital documents (from the exporter, the carrier, and inspectors) have been provided and validated, and all documents meet the requirements, the contract automatically notifies customs authorities to release the container, ensuring cleared customs while eliminating manual verification and delays
associated with clearing customs at the port.
Despite the evident value of the platform, with clients processing more than ten million events per week and utilising almost all major carriers worldwide, in late 2022, Maersk and IBM announced that TradeLens would be discontinued.
The case study of the project presents two main lessons:
Governance Matters: The competitors are inherently unlikely to participate in an ecosystem co-designed and governed by Maersk. Thus, for the ecosystem to develop, it has to have a governance model that provides assurance to all contributors, and that includes competitors.
The “Double Network Effect”: TradeLens had a double-edged sword. For industry actors to be willing to make a financial or time investment to connect to the network, industry actors had to simultaneously see many other industry actors as connected to the network. However, to grow the network, either time or money had to be invested by either actors or industry actors (this is further complicated by the absence even
within the time of basic global standards as a digital standard and fragmented rules and regulations that requires paper documents that was so slow as to reach a critical mass where those with oversight of the ecosystem could unify on operational objectives that could meet commercial viability).
The TradeLens story might be worth more as a “lesson” than as a success story, as it illustrates that the greatest challenge for a smart contract is not how to code it, but how aligned parties collaborate successfully.
Trusted Automation in Insurance
The insurance industry is yet another space with formal contracts and complex policy documents. This space also has large administrative expenses and high levels of competition; however, a significant trust gap exists with consumers in the insurance space. Smart contracts are an avenue where claim automation, decreased overhead, and transparent, consumer-friendly products can be developed.
Case Study: AXA’s “Fizzy” Flight Delay Insurance
Smart contracts can address the high expense of associated costs in the insurance industry. They can also serve to alleviate the issue of trust, as they will automate the claims process. For example, AXA’s “Fizzy,” offered a parametric flight delay policy. The logic used in this product was a perfect smart contract: it used a trusted data feed known as an “Oracle” to access flight data. IF it was confirmed by the oracle that a flight was delayed more than two hours, THEN, the contract was triggered and the payment was sent to the insured with no claim forms and no disputes.
That said, Fizzy was discontinued. While the technology was functional, the business model was not as successful, allegedly due to lack of sales partnerships and because payouts were not “instant”.
The idea that Fizzy promoted could survive in memory, and has inspired new models as well, including index-based insurance (for farming as an example, would be based on rainfall amounts) and “upfront payment” policies (this is a hybrid model for car accidents where the insured is paid for costs that incurred right away such as tow costs).
Streamlining Trillion-Dollar Trade Finance
Trade finance is the financial framework that enables international trade, however, it is one of the most paperwork heavy industries in the world. The Letter of Credit (LC) forms the basis, which is a bank’s promise to pay an exporter when the exporter shows the documents needed for payment. This is a slow, expensive, and extremely vulnerable to fraud and human error process. To digitize and automate this workflow, smart contracts are being deployed. In place of a paper LC, a smart contract will function as a digital Letter of Credit on a shared blockchain with the importer, exporter, and community banks.
The “if-then” structure I’ve translated here is a pretty big deal: An importer and exporter establish a purchase agreement that is “coded” to exist as a smart contract. The importer bank reviews the terms and deposits funds into the contract, transforming the payment obligation into a digital immutable agreement. As the goods are transported and delivered, the responsible shipping and/or customs agents upload their digital documents and signatures on the blockchain where it all is authenticated in real time, with little to no human interaction. IF the final digital “proof of delivery”
is provided (e.g., the importer digitally affirms receipt of goods), THEN the smart contract will release the locked funds to the exporter.
This is not simply a theoretical concept, as multiple platforms are doing it today with practical applications in trade finance:
● Hyperledger Fabric: A widespread enterprise blockchain framework that is being used by platforms, such as we.trade, backed by several large banks, to enable trade to small and mid-size enterprises (SMEs).
● Contour: A permissioned network, previously named Voltron, that is solely focused on digitising the Letter of Credit process, allowing banks and corporations to connect everyone involved to decrease processing time by over 90 per cent.
● Skuchain: Provides its EC3 platform, which converts an invoice into a digital asset on the blockchain so suppliers can get financing on much faster terms.
Digitising these complex transactions with multiple parties on a shared automation ledger enables smart contracts, which reduce settlements (faster) and operational costs. After fraud is reduced, capital is freed up, and efficiency is improved in the global trade and trade finance ecosystem.
Conclusion: Beyond the Hype, a Foundation for the Future
Walmart, TradeLens, and AXA’s case studies demonstrate smart contracts are no longer just an idea in theory, they are real tools solving real problems in the value chain by providing trust through automation and a single immutable source of truth that is much more removed from financial speculation.
However, these instances also offer a dose of reality. The non-successes of large efforts such as TradeLens and Fizzy reflect that technology alone is insufficient. The biggest hurdles are still human and sociological. Without appropriate cooperation between firms, neutral governance, and viable business models in place, even the mostwell-crafted smart contract will fail.
The future of smart contracts beyond cryptocurrency will not be a revolution, but rather an evolution, one industry ecosystem at a time. The question is moving from“Can we build it?” to “How will we agree to use it?” As these platforms develop, they are quietly creating a new, more efficient and trustless basis for global commerce.
References
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● IdeaUsher. (n.d.). In these competitive times.
● Jensen, T., Hedman, J., & Henningsson, S. (2019). How TradeLens Delivers Business Value With Blockchain Technology. MIS Quarterly Executive, 18(4),221–243.
● Kamath, R. (2018). Food Traceability on Blockchain: Walmart’s Pork and
Mango Pilots with IBM. The Journal of the British Blockchain Association,
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